Correlation Between Norsk Hydro and Ensurge Micropower

Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Ensurge Micropower at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Norsk Hydro and Ensurge Micropower into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norsk Hydro ASA and Ensurge Micropower ASA, you can compare the effects of market volatilities on Norsk Hydro and Ensurge Micropower and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Norsk Hydro with a short position of Ensurge Micropower. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Ensurge Micropower.

Diversification Opportunities for Norsk Hydro and Ensurge Micropower

-0.6

Correlation Coefficient

Norsk Hydro  Ensurge Micropower

Excellent diversification

The 3 months correlation between Norsk and Ensurge is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Ensurge Micropower ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensurge Micropower ASA and Norsk Hydro is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Norsk Hydro ASA are associated (or correlated) with Ensurge Micropower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensurge Micropower ASA has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Ensurge Micropower go up and down completely randomly.

Pair Corralation between Norsk Hydro and Ensurge Micropower

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 20.1 times less return on investment than Ensurge Micropower. But when comparing it to its historical volatility, Norsk Hydro ASA is 3.88 times less risky than Ensurge Micropower. It trades about 0.01 of its potential returns per unit of risk. Ensurge Micropower ASA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  63.00  in Ensurge Micropower ASA on September 14, 2024 and sell it today you would earn a total of  28.00  from holding Ensurge Micropower ASA or generate 44.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Norsk Hydro ASA  vs.  Ensurge Micropower ASA

Norsk Hydro ASA

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ensurge Micropower ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ensurge Micropower ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Norsk Hydro and Ensurge Micropower

The main advantage of trading using opposite Norsk Hydro and Ensurge Micropower positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Ensurge Micropower can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ensurge Micropower will offset losses from the drop in Ensurge Micropower's long position.

The idea behind Norsk Hydro ASA and Ensurge Micropower ASA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.